For all of you who have asked me my opinion on Exxon and gas prices.
Here are my two cents….
OPIC will not release more oil. Our environmentalist will block any attempt to build more refineries to refine our own gas. Everyone hates Nuclear energy. We cannot drill anywhere in the US or off our coast. We cannot use the coal our country sits on. We would rather promote the use of our food (corn) for fuel in our cars. Have you seen the price of milk, eggs, or anything that uses corn? Any other alternative fuel (wind, battery, solar) is going to take several years to get online and be a real factor. So what’s the solution for our gas prices?
Easy….if you’re like a lot people you complain about how much money the oil companies makes and it’s not fair. Exxon just reported a record high profit which is going to cause a lot of people to get all wound up. So is the answer to high gas prices to take profits away from a company who employees 87,300 people and sells on a global market?
I’ve got something else I would like you all to focuses on for a minute. How about our government? What about their profits on gas only? How about some tax breaks on a gallon of gas from our own government? The average US taxes on a gallon of gas is 42 cents http://www.energy.ca.gov/gasoline/statistics/gas_taxes_by_state_2002.html. We use approximately 400 million gallons of gas a day http://auto.howstuffworks.com/question417.htm. No matter what the price of oil is our government still makes the same amount of money on a gallon of gas. They have talked about increase the federal tax on a gallon of gas by .40 over the next 5 years.
So my rudimentary math shows we used approximately 146 billion gallons of gas in 2007. That means our very own government brought in a whopping $61.3 billion dollars in tax revenue. Let me remind you this is the revenue from taxes on gas only. Look around your office, car, house, and pay stub and try to imagine how much money you have paid the government. Everything you have bought, a portion of its price was paid to the government. Who is really making the money here? I’m going to say this once again. I’M NOT FOR BIG OIL, but I don’t agree with our government telling companies or people who should make money and who should not. Once you start this thinking and open up this type of government none of us (small or large businesses) will be safe. This type of government think will trickle down to all businesses.
We need to make steps towards getting us away from foreign oil dependency. This is only going to happen through several small steps. We might have to use some of our available resources for a small period of time while the free market develops other alternative fuels. You cannot just shut something this large off and expect to not have our economy collapse. That type of think is about as bad as Hillary saying she is going to freeze adjustable rate mortgages for 5 years. CANNOT HAPPEN!!!!! We are involved in a global economy.
There’s my opinion.
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3 comments:
Hey Kirby, no hate mail here (life is too short for that), but the econ minor in me had to reply to your post.
I agree that getting all worked up over ExxonMobil's huge profits is a silly diversion.
Your proposal for reducing the price of gas by reducing or eliminating federal and state taxes is interesting, but there's some basic economic principles that argue against that logic.
The first one is the relationship between price and demand. In general, if price goes down, demand goes up and vice versa.
The second one is the relationship between price, supply, and demand. In general, price is determined by the relationship between supply and demand: the higher demand relative to supply, the greater the price and vice versa.
There's a lot of economics that's pure voodoo, but these two principles have stood the test of time for a few centuries.
The other interesting fact is that today (and likely for the forseeable future), oil supply and demand are almost perfectly matched. Any perturbation (refinery out of commission, little wars here or there, etc.) results in huge price swings because there is no slack between supply and demand.
So I think it would be a pretty safe bet to predict what would happen if you reduced the price of gas by reducing or eliminating taxes: demand would rise, supply would be constrained, causing the price to then rise again, likely to the same level at which it existed before with the taxes (ask your friendly neighborhood economist to do the math). The only difference would be that now there's a big hole in the federal and state budgets that likely would not be matched by spending cuts, thus increasing already out of control deficits.
Apart from just theoretical predictions, you can easily see evidence for this by looking at the countries that have much higher gas taxes than the US (almost all of Europe), and those that have zero or low taxes (oil producing countries like Venezuela, the UAE, Saudi Arabia, Iran, etc.)
In those countries with much higher gas taxes, consumption is much much lower per capita than in the US and the economies are much more efficient in the amount of oil required to produce a $ of GDP. The exact opposite is true in those countries that have no taxes on oil and even more so for those countries like Venezuela that even subsidize oil (for political reasons, just like the Soviet Union subsidized bread and Chine subsidizes rice). These economies are very inefficient and all are oil gluttons and highly dependent on those lower prices.
It's been pretty clear for a few decades (with ample evidence from other world economies) that the way to free us from our oil addition is to INCREASE the price, not decrease.
Back in 1976, independent presidential candidate Jon Anderson self-destructed his candidacy by advocating a $1/gallon gas tax. Back then, gas was only $1/gallon. People thought he was insane.
Those people weren't economists.
Now we are paying $3, $4, and $5 for gas and the price will keep going up. Note that we still have a functioning economy that much larger and more productive that the one we had back in 1976. So clearly the sky didn't fall down because the price of gas went to $2 (and beyond).
If back in 1976, we actually implemented that tax, we could have paid off the national debt, funded health care for all americans, funded research into alternative energy technologies and accelerated their development by 20 years, and the result: US (and therefore world) demand for oil would have dramatically been reduced and prices would have DROPPED because of that drop in demand. We be using less oil today and paying much less for it.
K
LOL - Let the hate e-mail roll in... We love you Kirby! We would never send you hate e-mail :)
First, let me say that I agree with you regarding alternative energy solutions and finding our own sources of oil. We have screwed ourselves in many ways regarding energy sources.
Now, let me explain why I have a problem with Exxon. It's fine if you disagree - we can still be friends!
Exxon's record profits this year are a record for any US based corporation ever, not just a record for Exxon. Last year they also reported record profits. Who is paying the price for these record profits? From my perspective, everyone is paying the price! As Exxon continues to make more and more money year after year, the cost of gas continues to rise. As the cost of gas rises, everything else continues to rise in price, because the cost of gas (freight) is calculated into the cost of most everything. This is a big burden on our economy. We have been hearing for 3 years now that the rising gas prices are based on the cost of foreign oil, but Exxon is proving otherwise. Even when the cost of oil dropped by 10%, gas prices remained steady. I feel Exxon is purposely causing a huge hardship on our economy, and I resent them for that.
You mentioned that I am probably feeling the benefit of Exxon's record earnings since I likely own some Exxon stock in my portfolio - surprisingly, after Exxon made this record profits announcement, their stock price fell. It looks like I'm not the only one in the market disgusted by their earnings. Furthermore, my stock portfolio has lost money over the past two years - the same two years in which Exxon reported record highs. I'm not saying Exxon is 100% responsible, but I do feel they are a significant force in the decline of the market. If I could remove Exxon stock from my money market offering, yes, I would. I don't agree with their business practices.
You asked if I have a problem with Microsoft making so much money. The answer is no - Microsoft charges a fair price for a decent product. I love capitalism. I love free enterprise. However, I also hold corporations to a certain set of goodwill standards to charge a fair price for a product and to be mindful of their actions on people and the economy. I think Microsoft has been a good steward of their power. Also, I love Bill Gates. He's a good guy.
So that's why I reacted negatively to Exxon's record earnings, and from my research, I am not the only one. Consumer rights groups are also all over their tails to reduce prices.
That's my story, and I'm sticking to it :)
Thanks for your responses. Kurt and Woman (ha, ha ,ha) your smart and informed people and I’m glad you posted your comments. I’m a horrible writer so maybe my point did not come across right. I’m simply trying to say our very own government makes a huge profit and no one really cares.
First I have to clarify myself and say I do not believe in eliminating federal gas taxes. I was simple saying a tax break. I understand everything your saying Kurt. Supply and demand does control everything. And yes the increase of gas prices will stimulate other means of fuel which will bring the price down due to competition in the market place. But the way the price of gas needs to go up is in the free market, not a government driven market. Do you not feel the government is playing games with the gas tax? If they really wanted to get peoples attention they would raise taxes to $1 (as you mentioned) or more and spark businesses to come up with alternative fuels, but they are not. I feel it’s because they have no interest in getting people all wound up about alternative fuels. They want us to use oil, so there is a balancing game going on. They wait until we become comfortable with a tax and then they raise it a little. When they implement the new increase in gas tax they will do this in little increments over a long period of time. They make so much money that if oil did price itself out of the market they would have to find other things to tax to fill the void.
Like you mention about 1976… if they would have put $1 tax on gas it would have paid off the national debt, funded health care, and so one. That sounds good but our government has one hell of a track recorded of finds ways to distribute tax income in wasteful ways. I feel they would have created more debt in other areas. Increasing taxes and our government’s size will never help our economy. Smaller government and more freedom in the business sector will, and letting the market flow without government trying to control its outcome.
I hope you see where I’m trying to go. If you give our government an inch they will go a foot, and they have no fiscal responsibility. The government keeps three books and it depends on which book you look at to determine our debt. I also heard the late president Kennedy wanted to just erase the books with our debit and start over. That’s the type of thinking we have in Washington. Wait until the government decided to just start printing more money. I hope you all are buying gold, silver, the yen, or some other currency.
Once again does no one think $61 billion is a little much?
Woman do you know Bill personally? If you do will you smack him for me? His company has cost my company over $5000 this year due to releasing Vista and making XP almost impossible to get on a new computer. This is where I drawl the line with Microsoft. They release a program that small businesses and even large businesses are not ready for and they force it down your throat and create an extremely expensive situation.
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